AK
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Registered: 5th Jul 00
Location: Aberdeen City
User status: Offline
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right...
can someone please explain the in's and out's of having a limited company.
I understand you take a minimal wage to make use of your personal tax allowance.
Can you take profits out at 20/22% (up to 300k) at anytime? Does this not count towards your income? Is the first 10k of profits still tax free?
confused.
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Robbo
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Registered: 6th Aug 02
Location: London
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First off I'd pay little heed to what most people on here know as I doubt very many have much of a background in CT...
First start is http://www.hmrc.gov.uk/ctsa/index.htm
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Robbo
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Registered: 6th Aug 02
Location: London
User status: Offline
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Rates, limits, fractions for financial years starting 1 April
2007
2008
Main rate of corporation tax
30%
28%
Small companies’ rate (SCR)*
20%
21%
SCR can be claimed by qualifying companies with profits at an annual rate not exceeding
£300,000
£300,000
Marginal small companies’ relief (MSCR) lower limit
£300,000
£300,000
MSCR upper limit
£1,500,000
£1,500,000
MSCR fraction
1/40
7/400
Special rate for authorised investment funds – unit trusts and open-ended investment companies
20%
20%
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Robbo
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Registered: 6th Aug 02
Location: London
User status: Offline
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So you basically pay 20% on profits up to £300k and then 30% thereon... however, earnings between £300k and £1.5m get what is called marginal relief so it reduces the amoutn you pay to around 24% ish
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Robbo
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Registered: 6th Aug 02
Location: London
User status: Offline
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http://www.hmrc.gov.uk/ctsa/ct41g-notes-08-05.pdf
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Robbo
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Registered: 6th Aug 02
Location: London
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You take enough of a salary to cover your allowances and make it look legitimate, the rest is generally taken as a dividend which is subject to tax at 32.5% for you (HR taxpayer) rather than 40% as normal
However the HMR&C have some rules to stop you abusign this of which i forget now
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AK
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Registered: 5th Jul 00
Location: Aberdeen City
User status: Offline
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yes... i know that bit....
BUT - can you claim profits as dividends at any time. Will you not be subject to further 'income' tax if you claim these profits as earings during the year 
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Robbo
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Registered: 6th Aug 02
Location: London
User status: Offline
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You can take interim dividends on a monthly basis yes but they are subject to the reserves of the company (which are built up by your profits)
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Fee
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Registered: 16th Nov 05
Location: With AK
User status: Offline
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so do you get taxed on the money coming into the company, and then taxed on dividends taken out of the company?
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Fee
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Registered: 16th Nov 05
Location: With AK
User status: Offline
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or do you just pay corporation tax on what is left in the company at the end of the financial year?
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Conway563
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Registered: 7th Jun 06
Location: Yate, Bristol
User status: Offline
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I used to work under my own limited company when I was contracting but when they changed the laws on it in April 07 it become a lot harder to take dividends and wasn't cost effective.
Can't remember what the laws on it all were as I used to pay someone else to deal with it all
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Robbo
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Registered: 6th Aug 02
Location: London
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quote:
Originally posted by Fee
so do you get taxed on the money coming into the company, and then taxed on dividends taken out of the company?
Yes
the dividends is your own personal tax though
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Robbo
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Registered: 6th Aug 02
Location: London
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quote:
Originally posted by Conway563
I used to work under my own limited company when I was contracting but when they changed the laws on it in April 07 it become a lot harder to take dividends and wasn't cost effective.
Can't remember what the laws on it all were as I used to pay someone else to deal with it all
u got snuffed out by IR35 then
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Robbo
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Registered: 6th Aug 02
Location: London
User status: Offline
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quote:
Originally posted by Fee
or do you just pay corporation tax on what is left in the company at the end of the financial year?
no, dividends arent an expense of the conmpany, they are a 'distribution' of funds the company has built up via its profits
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AK
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Registered: 5th Jul 00
Location: Aberdeen City
User status: Offline
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currently I receive 100% tax rebate most years due to the nature of my work and generally being out of the UK for more than 50% of the year.
Do you know if I started a Ltd company and paid myself a large wage..... would that wage still be eligable for the tax relief I claim just now. I cant see why not to be honest
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Fee
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Registered: 16th Nov 05
Location: With AK
User status: Offline
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quote:
Originally posted by Robbo
quote:
Originally posted by Fee
so do you get taxed on the money coming into the company, and then taxed on dividends taken out of the company?
Yes
the dividends is your own personal tax though
So Adam would effectively be paying tax on his earning going into the company, and then be taxed again on the same earnings when he dividends them out?
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Cosmo
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Registered: 29th Mar 01
Location: Im the real one!
User status: Offline
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As a director of the company you can pay yourself a 'wage' and not pay any income tax on it - atleast thats what we do 
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Robbo
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Registered: 6th Aug 02
Location: London
User status: Offline
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quote:
Originally posted by Fee
quote:
Originally posted by Robbo
quote:
Originally posted by Fee
so do you get taxed on the money coming into the company, and then taxed on dividends taken out of the company?
Yes
the dividends is your own personal tax though
So Adam would effectively be paying tax on his earning going into the company, and then be taxed again on the same earnings when he dividends them out?
yup
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Robbo
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Registered: 6th Aug 02
Location: London
User status: Offline
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quote:
Originally posted by Cosmo
As a director of the company you can pay yourself a 'wage' and not pay any income tax on it - atleast thats what we do
no you cant
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AK
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Registered: 5th Jul 00
Location: Aberdeen City
User status: Offline
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so... you get humped for 20% corp tax on money coming in, then double humped when taking profits out? (35%)
that right?
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Robbo
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Registered: 6th Aug 02
Location: London
User status: Offline
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quote:
Originally posted by Fee
quote:
Originally posted by Robbo
quote:
Originally posted by Fee
so do you get taxed on the money coming into the company, and then taxed on dividends taken out of the company?
Yes
the dividends is your own personal tax though
So Adam would effectively be paying tax on his earning going into the company, and then be taxed again on the same earnings when he dividends them out?
dividends are weird though because they are paid net of tax... so the amoutn you pay yourself, you add tax back onto that and pretend you have paid tax... which is what Cosmo will be referring to
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Robbo
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Registered: 6th Aug 02
Location: London
User status: Offline
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quote:
Originally posted by AK
so... you get humped for 20% corp tax on money coming in, then double humped when taking profits out? (35%)
that right?
see my last message, not quite as straight forward as that
Remember companies are set up as vehicles to manipulate tax rules and companies are seperate legal entities
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Hammer
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Registered: 11th Feb 04
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One of the main advantages of starting a limited company is so that when you breach the upper earnings limit you can leave any excess profit within the company (taxed at 22%) rather than incur the 40% you would as a sole trader.
If you're already recieving a 100% tax rebate that's that advantage redundant?
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Robbo
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Registered: 6th Aug 02
Location: London
User status: Offline
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quote:
Originally posted by Hammer
One of the main advantages of starting a limited company is so that when you breach the upper earnings limit you can leave any excess profit within the company (taxed at 22%) rather than incur the 40% you would as a sole trader.
If you're already recieving a 100% tax rebate that's that advantage redundant?
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Cosmo
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Registered: 29th Mar 01
Location: Im the real one!
User status: Offline
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quote:
Originally posted by Robbo
quote:
Originally posted by Cosmo
As a director of the company you can pay yourself a 'wage' and not pay any income tax on it - atleast thats what we do
no you cant
Im not sure what we are doing then, but we are def paying ourselves (above board!) without paying income tax. Classed as self employed so pay NIC contributions that way.
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